After covering the area of net asset classification in our thought leadership article series relating to Financial Accounting Standards Board’s ASU 2016-14, “Presentation of Financial Statements of Not-for-Profit Entities,” the next significant area of reporting change is liquidity and availability of resources.  Current not-for-profit (NFP) reporting standards do not require an organization to clearly report any restrictions they might have on the availability of their liquid resources.  This makes it difficult for users of the financial statements to know if the NFP will be able to meet its financial obligations as they come due in the coming year.  Simply stated, will they be able to convert enough assets into cash to pay their bills?  Such constraints would include the nature of the assets, contractual agreements, and both internal (board-designated) and external (donor-designated) restrictions on cash and cash equivalents.  The following are all examples of financial resources that would not be considered available:

• Financial assets invested with long-term obligations.
• Cash advances received from a governmental department to provide certain client services that must only be used for the specified services.
• Board designated amounts to be set aside for future building renovations (or any other purpose) that cannot be used for general operating expenditures.
• Amounts designated by donors for scholarships and must be used for that purpose only. 

As this new liquidity and availability of resources area strives to increase transparency in the financial statements and promote a more accurate and thorough understanding of the NFP’s ability to fund its operations, its practical implications can be confusing.  This disclosure requirement has both quantitative and qualitative components, enabling organizations to communicate in both verbiage and numbers how they manage their liquid available resources and exactly what that amount is as of the balance sheet date.

We encourage you to begin examining the components of your organization’s financial resources and determine how best to compute and present the information within the confines of the new reporting standard. 

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The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.